Sterling below day's highs as Brexit, risk aversion weigh

LONDON (Reuters) - Sterling edged below the day’s highs on Thursday after upbeat British retail sales data, with traders wary of pushing the currency too much further given persistent concerns over Brexit negotiations.

FILE PHOTO: A British Pound Sterling note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

The British currency extended gains to rise half a percent on the day at $1.3419 compared to $1.3385 earlier as retail sales volumes rose by 1.6 percent from March, well above the median forecast for a monthly 0.7 percent increase in a Reuters poll of economists.

But it subsequently trimmed early gains to stand 0.2 percent up on the day at $1.3371.

The currency’s gains on Thursday marked a reversal of fortunes from Wednesday when it fell to its lowest levels since mid-December on a slower than expected pick up in inflation.

“With the pound more concerned with Brexit uncertainty and diminishing expectations of a BoE rate hike, further losses are on the cards,” said Lukman Otunuga, a research analyst at FXTM.

Sterling’s gains were also magnified by the dollar’s weakness which was down a quarter of a percent against a basket of its rivals after U.S. President Donald Trump called off his planned June 12 summit meeting with North Korean leader Kim Jong Un.

However, on a trade-weighted basis, sterling was trading near its lowest levels in two weeks at 78.67.

Britain will end its implementation period with the European Union after Brexit in December 2020, a government source said on Thursday, denying a media report that Prime Minister Theresa May was seeking a new transition until 2023.

“I would expect limited gains for sterling however as the longer term outlook remains subdued,” said Neil Jones, Mizuho head of FX hedge fund sales based in London.

Market implied expectations for the next rate hike remained unchanged with bond markets pricing in a move by the end of the year with a 33 percent probability of a rate hike by August.